Valentine’s Day is traditionally a day to celebrate all things concerning romance and love. When one thinks of Valentine’s Day, thoughts turn to soppy cards, chocolates, roses, and matters of the heart. Patent Box Tax Relief, on the other hand, evokes images of the taxman and the corporate world of accountants and tax advisers.
The two concepts of Valentine’s Day and the Patent Box seem poles apart and incongruous yet they are, in truth, a match made in heaven.
Valentine’s Day has always been a significant day for inventors. On February 14th, 1876, Alexander Graham Bell filed the patent application for a telephone. This was a controversial day in the history of patenting as Elisha Gray filed a patent application for a similar invention on the same day but Alexander Bell filed his paperwork first and the patent for the telephone was granted on March 7th, 1876. The telephone is one of the most important inventions in the field of communications of the modern age. Because of the telephone, we can talk to our friends, families, and loved ones without the hassle of travelling far and wide.
Valentine’s Day itself has spawned a multitude of patented inventions. The first-ever U.S. Plant Patent issued was for a rose. In 1931, Mr. Henry F. Rosenberg was granted a plant patent for a climbing rose.
In 1998, Deloris Gray Wood was granted a patent for a kissing shield; a device that allows the user to kiss people without the worry of contracting germs and diseases; most importantly HIV and AIDS.
In 2002, Ami Haimoff was granted a patent for a method of making a heart-shaped diamond. The process involves cutting two pear-shaped diamonds and placing them side-by-side in a setting in such a way as to create a heart shape.
In the world of internet dating, the most famous patent is that filed by Eharmony. The patent description for Eharmony is “method and system of for identifying people who are likely to have a successful relationship”. The patent surrounds an extremely successful formula whereby people are matched in a way that provides the best chance of them forming a lasting relationship.
Not as successful was the patent application filed by Ryan Thomas Grace in the United States in 2003. Mr. Grace filed a patent application for a method and instrument for proposing marriage to an individual. Mr. Grace wanted to introduce an improved method of proposing marriage to an individual whereby a filed patent application (containing a proposed way of proposing marriage to an individual) was the marriage proposal itself.
Mr. Grace thought that a patent application was a more romantic way to propose marriage than traditional methods such as dropping a diamond ring into a glass of champagne and bending down on one knee. Not surprisingly, Mr. Grace`s patent application was unsuccessful.
This Valentine’s Day, loving one`s business and one`s bottom line is just as important as loving others and I urge company owners to be mindful of the benefits of Patent Box Tax relief! Of course, Patent Box tax relief is not only relevant to inventions deriving from Valentine’s Day but to inventions arising from R&D activity all year round.
Patent Box Tax Relief is a corporate tax incentive regime that provides for the payment of corporation tax at the rate of 10% on qualifying IP profits. The regime provides for a near 50% reduction of corporation tax when one considers the current main rate of 19% and this will increase further when the main rate increases to 25% in 2023.
Qualifying IP profits are profits that derive from exploiting specific patented inventions. If you are a U.K. manufacturing company that designs and develops products, patents them in the U.K., and sells them both within the U.K. and overseas, there could be significant corporation tax savings on profits that arise from your product sales derived from both within the U.K. and outside the U.K.
If you are an online business that provides a service to respond to a user’s specific requirements that have been developed from a patented algorithm, there could be significant corporation tax savings on profits associated with the payment of subscription fees.
If you are a U.K. R&D company that develops and patents products (such as confectionary) that is licenced out to an overseas franchisee to manufacture and distribute, there could be significant corporation tax savings on profits that derive from licences granted to overseas distributors. If royalties are also paid to the manufacturer arising out of products manufactured and sold by the franchisee overseas, this could also attract Patent Box tax relief.
To qualify for Patent Box Tax Relief you must:
- Be a U.K. company and either own or exclusively licence in qualifying intellectual property
- Earn qualifying income from the intellectual property owned or licenced in
- Elect in to the Patent Box regime
Qualifying intellectual property includes U.K patents, European patents as well as patents granted by the national intellectual property offices of certain European countries.
Qualifying IP income includes the worldwide sales of items covered by U.K. or European patents, licence income and/or royalties derived from U.K. or European patents licenced to others, sales income deriving from the sales of qualifying intellectual property and other income derived from exploiting a U.K. or European patent e.g. subscription fees.
It is not possible to claim Patent Box tax relief until the patent is granted although it is possible to elect in and notify HMRC that a claim can be expected in the future. Tax relief can be repaid on corporation tax paid for up to six years before the patent is granted provided that the company has elected into the regime for each accounting period.
If a company does not own any qualifying IP or has not directed its mind to patenting, the imminent increase in the main rate of corporation tax payable might provide an incentive to think about it. Most patenting attorneys are willing to have an initial conversation about patenting the outcome of R&D activity free of charge and I would urge everyone to consider this.
The costs of patenting are frequently cited as a reason for not pursuing patenting. The cost of obtaining a basic U.K. patent that is sufficient for the Patent Box is relatively cheap at around £5K and I would urge everyone to make enquiries.
For more information on the Patent Box, to be put in touch with a patent attorney and to determine whether your business might qualify to make a claim, please contact Caroline Walton on Caroline.Walton@claritastax.co.uk.
